An expanded KiwiSaver scheme would be a major boost for the local capital market - pumping an extra $52 billion into the New Zealand stock exchange by 2066, a report says.

A further $3b could be invested in unlisted companies.

The report by Infometrics was commissioned by the Financial Services Council, whose members include KiwiSaver fund managers, and says funds in KiwiSaver would grow to $731b by 2066 - from about $12.5b currently - if the scheme covered 80 per cent of employees and the total contribution rate increased to 10 per cent.

New KiwiSaver members would start with a total (employer plus employee) contribution rate of 1 per cent in 2015, that would rise by one percentage point per year to reach 10 per cent by 2024.

Existing members would stay on their current contribution rate until new members caught up, after which time their rate would increase annually, too.

Currently, savers can choose to contribute 2, 4, or 8 per cent of gross pay. The default rate for savers who don't choose is 2 per cent. The contribution by employers is 2 per cent.

KiwiSaver providers have already invested in local - mainly listed - companies and that would increase under an expanded scheme, the report says. For retirees, the boosted scheme would mean on average an extra $300 per week over and above New Zealand Superannuation.

Peter Neilson, council chief executive, said the cost of increased contributions would concern some businesses, but was not massive.

The cost for employees and employers would be equivalent to the cost of a cup of coffee a week for each party each year for 10 years, for someone starting work on the median wage.

Greater domestic investment through KiwiSaver in local firms would lower their cost of capital - given that overseas investors typically demanded more of a return than local ones.

KiwiSaver funds would ensure a consistent flow of funds into the sharemarket, even in rough times, leaving companies less vulnerable to the effect of global capital shocks and risk-wary shareholders withdrawing funds, he said.

Other benefits would include greater employment in the financial services industry and increased labour productivity as businesses used the additional capital to invest in plant and machinery.

"It also makes a difference where investment decisions are made. If I'm in Auckland, I can go and visit a small, rapidly growing company, and decide to put money into it. It's less likely someone in Singapore or London will make that trip," Neilson said.

As of March last year, 10 per cent of KiwiSaver funds were invested in local equities, while 30 per cent was invested in overseas equities.

But this will change, Neilson said, as people moved to more balanced and more aggressive funds - perhaps following the Government's review of conservative default funds.

Based on feedback from three KiwiSaver providers, the average proportion of a balanced fund allocated to domestic equities was projected to increase to about 13 per cent.

In Australia, which has had a compulsory KiwiSaver-type scheme since 1992, the proportion of Australian equities held by superannuation funds grew from 8.5 per cent in 1998 to 29 per cent of the total market capitalisation of the ASX in 2009/10.

Tower has used KiwiSaver money to obtain sizeable stakes in gumboot and industrial equipment maker Skellerup (3.3 per cent), campervan operator Tourism Holdings (6.5 per cent), and automated machinery manufacturer Scott Technology (7 per cent), and is continuing to acquire stakes in other firms.

Tower Investments chief executive Sam Stubbs said it would not have made larger investments into smaller companies without KiwiSaver funds.

"KiwiSaver money is locked up for a long time so we can afford to take longer-term investments. We can also take bigger chunks of companies because we're happy to have them illiquid."

KiwiSaver had created a "rising tide of capital" to support the domestic market, and Tower had repatriated $160 million from international equity markets in 2011 back to New Zealand. "We knew there would be a lot more money coming into the New Zealand market via KiwiSaver," Stubbs said.

KiwiSaver funds that became substantial shareholders in local companies became more involved in corporate governance.

"It's useful for those companies to have at the table a significant shareholder who's interested in seeing their share price go up."

KiwiSaver funds were also used to buy local government debt, and in future would also buy corporate debt as companies increasingly tapped the local market, he said.

TOWER BACKUP AIDS GROWTH - TOURISM CEO

Tourism Holdings chief executive Grant Webster said Tower had been pivotal in the company gaining shareholder approval for its $70 million purchase of Kea Campers and United Rentals this year.

"Tower helped us get that across the line. Strong New Zealand-based shareholders like Tower provide greater security and greater confidence for a company like us to continue to invest."

Tower was a tough investor as well. "They're good strong advocates for shareholders. They challenge us. There's no performance review like an institutional investor performance review."

Meanwhile, fund managers for Mercer have taken a stake in Dunedin cancer diagnostics company Pacific Edge.

Pacific Edge chief executive David Darling said without investment in capital markets from institutional funds New Zealand would not be able to generate and support the kinds of businesses that could grow the economy.

Institutional funds took a long-term view and were generally supportive of and had an appetite for capital raising from shareholders.

Venture capitalists demanded fast and high returns and preferential rights in return for their investment.

"They will take a company to a funny place behind the bike sheds and do funny things to them in order to get their money out. They can pull it apart and sell its assets or sell it outside New Zealand. It can be destructive."